A members’ voluntary liquidation (MVL) enables shareholders to put a solvent limited company which can pay all its creditors in full into liquidation in a tax and cost efficient way. The procedure initially follows a decision by the directors that the company has run its course and has no further purpose and may also involve the retirement of the members. The decision may be prompted by tax planning considerations to enable shareholders to unlock their investments as capital distributions subject to capital gains tax (CGT) rather than as income subject to income tax.
Since the Extra-Statutory Concessions Order 2012 was introduced on 1st March 2012 any distribution to shareholders on the company closure which is over £25000 will be considered as income for tax purposes with the exception if an MVL is used. The previous Extra-Statutory Concession C16 (ESC-16) was thereby replaced. An MVL will often permit the use of Entrepreneur Relief which may bring the CGT rate payable down to 10%. It is important that the full tax implications are considered by the directors before an MVL is commenced.
Declaration of Solvency
All or a majority of the directors must make a statutory Declaration of Solvency that they have made a full enquiry into the company's affairs and have formed the opinion that the company will be able to pay its debts in full, together with statutory interest, within a specified period of time not greater than 12 months from the date of liquidation. A statement of the company's assets and liabilities at the latest practicable date is included. The Declaration must be made not more than 5 weeks before the date of liquidation and has to be filed at Companies House within 15 days after that date.
A special resolution to wind up the company voluntarily is required to be passed by the shareholders in general meeting together with an ordinary resolution appointing an Insolvency Practitioner as Liquidator. An MVL commences on the passing of the resolution to wind up. Details of such resolutions have to be advertised in the London Gazette and filed at Companies House.
The Liquidator must be a licensed Insolvency Practitioner and must give notice of his appointment to the London Gazette, Companies House and to all creditors.
A wide range of powers are afforded to the Liquidator to facilitate realisations of the company’s assets, agree creditors’ claims and make distributions to members and creditors. Certain powers may only be exercised with the consent of the members.
The company can only carry on its business in so far as is necessarily beneficial to the liquidation for example to maximise funds from the disposal of certain assets or to complete the sale of the company’s business as a going concern. The powers of its directors cease other than as sanctioned by the members or the Liquidator. The status of the members cannot be altered.
If the Liquidator becomes of the opinion that the company will be unable to pay its debts in full (plus statutory interest) within the specified period in the Declaration of Solvency then he must call a meeting of creditors to convert the MVL to a creditors’ voluntary liquidation (CVL) no later than 28 days from which he formed the opinion.
Upon completion of the MVL the Liquidator is required to hold a meeting of members to lay before them an account of the liquidation and seek his formal release. Such meeting has to be Gazetted a month beforehand and the return thereof filed at Companies House within 7 days of conclusion.
The company will be automatically dissolved 3 months after registration of the Liquidator's final return at Companies House. The company‘s books and records may be destroyed by the Liquidator one year from the dissolution.